Fed Twist To End June

Operation Twist began September 21,2011 and is expected to end in June.  The S&P 500 climbed from 1,166.76 on September 21, 2011 to 1,419.04 on April 2,2012 or a 21.6% gain at the peak.  The S&P 500 has recently dropped to 1,317.82, but still has presented a12.9% gain; not too bad.  I am not sure what impact Operation Twist had on the market, but it seems clear to me that it helped play a role in the markets improvement.  As the market closed on Friday 5/18/2012 at 1,295 the ten year treasury notes were near their lowest level and the spread between the 2 year and 30 year bond rates were at a record high.  This tells me that the Fed was successful in achieving their desired results, but the troubles in Europe did not hurt their cause as well.

As the Twist comes to an end, it is likely that there will not be an immediate response from the market or the Fed, for that matter; as I expect that long term bond rates will remain low as long as the risks from Europe persist. We begin to hold for the tentative sell signal as the long term sentiment signal (Chart 1) has just peaked last week and continued its decline this week.  I expect that the tentative sell signal will present by the end of July based on the slope of the long term signal.  The expected trading range this week (Chart 2) is between 1,273 and 1,363 (or +/- 3.41%).

Chart 1: 05/25/2012 S&P 500 Sentiment Signal

Chart 2: Week Of 05/29/2012 S&P 500 Range Chart